The State, by Other Means

The conventional wisdom in development economics now holds that economic success occurs only where the state does an excellent job in non-market areas like education, health and rural development. Bangladesh has come up with an original alternative.

It has a corrupt, inefficient state capable of delivering basic services. But its non-government organisations (NGOs) have become so strong that they rival the state in reach, and perform far better. Their successes, and limitations, hold important lessons for India.

Improbably, Bangladesh has emerged as the world leader in NGOs. The Grameen Bank, BRAC, Proshika and Association for Special Advancement are among the largest rural development organisations in the world, working in 60,000 of the country’s 86,000 villages. The biggest, BRAC, runs schools, health centres and micro-credit schemes in 50,000 villages, has over 19,000 permanent employees and 33,737 part-time teachers.

Foreign donors, tired of seeing aid wasted by the Bangladesh government, are delighted to channel aids to NGOs instead. Yet within Bangladesh, criticism of NGOs for waste, corruption and exploitation is spreading. Top NGO leaders live in palatial houses and have become international jet-setters. They are expanding out of traditional social areas: BRAC is becoming a dairy giant, and runs an international chain of handicraft shops. Grameen Bank has diversified into cellular phones, textiles and Internet services. Critics say NGOs have become a parallel state financed by foreigners, accountable to none.

Few contest the fact that NGOs provide services far better than the stale. NGOs have provided small loans to no less than 6 million poor people, of whom over nine-tenths are women. Commercial banks lend only to those with collateral, the micro-credit societies lend only to those with no collateral. Yet their rate of recovery exceeds 90 per cent while India’s nationalised banks cannot cross 50 per cent. Beneficiaries form groups, and loans to individuals are guaranteed by the groups, who oblige borrowers to repay. Ninety-six per cent of BRAC’s borrowers are women, who have proved far more creditworthy than men.

BRAC has no pukka school buildings, and only rents thatched rooms. At least 70 per cent of its students must be girls, and 96 per cent of its teachers are women. These are all local folk who have typically not completed high school themselves, and are paid just 600 takas (Rs 540) per month. BRAC schools give no homework, have no regular exams, and have flexible hours to enable working children to attend. Despite having inferior facilities, technically unqualified teachers, and enrolling only drop-outs from government schools, BRAC provides better education than government schools. UNICEF has hailed its non-formal educational model as the most cost-effective anywhere (around $ 20 per child per year).

It also covers primary health, poultry, livestock, vegetable cultivation, human rights and legal education. BRAC says schooling and credit are not enough, people also needs skills. So it is expanding training and going commercial (its dairy wing is a large, full-fledged corporation).

Grameen Bank has entered into a joint venture for cellular phones. It argues that telecom is absolutely vital for rural development, where there is no chance of getting regular telephone services. Cellular phones provide an answer: Village women can buy such phones with micro-credit and able to rent these out for calls. NGOs in Bangladesh have not followed any foreign model. They are global innovators who have performed what once looked impossible. Why, then, are they criticised so much in Bangladesh itself?

Some criticism reflects vested interests (politicians and bureaucrats hate a rival power centre that exposes their own shortcomings). Some reflects dead ideology. Socialists in India and Bangladesh always swore by concessional credit for small borrowers. But BRAC charges 15 per cent interest on loans, Grameen up to 22 per cent. Socialists call these rates exploitative. Yet the high repayment rate proves that socialists are simply wrong in emphasising low interest rates rather than access to credit.

Besides, some women who borrow from BARC at 15 per cent simply re-lend the money at 20 per cent. Concessional interest simply increases the probability that the beneficiary becomes a moneylender rather than entrepreneur.

Top NGO leaders are often rich men with sumptuous lifestyles. I personally have no objection. People who achieve such great economic feats deserve as much reward as the heads of multinational corporations. No system based on self-sacrifice by penniless socialists can ever grow much.

I far prefer an organisation like BRAC which pays market-rate salaries to over 50, 000 employees. Maybe there is some corruption and embezzlement, but that happens in MNCs too. I find ridiculous the charge that 600 takas per month for part- time rural teachers is exploitative. The very fact that BRAC has so many applicants proves otherwise.

Some NGOs are pure rackets. But why tar all NGOs with the same brush? On balance, they have done a marvellous job. Indian NGOs need to learn from this.Many in India consist of a charismatic leader surrounded by admiring chelas, and such organisations collapse when the leaders depart or lose interest. Bangladesh, too, has charismatic leaders (like Muhammad Yunus of Grameen), yet its NGOs are notable for efficient managerial systems that will survive the death of its leaders.

Despite their good work, Bangladesh remains poor. The poverty ratio has declined from 59 per cent in 1991-92 to 53 per cent in 1995-96, says the World Bank, yet it could take a century to eradicate poverty. Mr Wahiduddin Mahmud of Dhaka University says micro-credit has helped beneficiaries, but the benefit to the economy could be far less (if a sluggish economy gives scope for only a limited number of shops or bullock carts in a village, Grameen beneficiaries taking up such activities may simply displace others rather than add to village GDP). Ultimately, only a dynamic economy can eradicate poverty.

The really big achievement of NGOs, says Mr Mahmud, is their empowerment of women. By focussing education, jobs and credit on women, NGOs have transformed women from illiterate chattels to entrepreneurs who challenge and beat men in the workplace. For some jobs BRAC requires that women applicants must ride a motor-cycle, the ultimate rural symbol of empowerment. No wonder the mullahs are so angry with NGOs, and have attacked and burned BRAC offices.

Female empowerment has spurred Bangladesh’s dramatic success in reducing fertility. This does not show up in GDP growth rates, but contributes greatly to the rise in per capita income. Above all, it constitutes a social revolution.

So, while NGOs cannot end poverty, they can greatly mitigate the failings of an ineffective state, and transform society at the grassroots. Everybody in India should learn from this, especially Leftists who for too long have seen the state as the solution for all ills.

What do you think?